Stock investments: down 30%. Salary package: down 30%. Investment property: down 20%. As Thomas Zhou reflects on 2023, his household finances are front of mind.
“It’s just heart-breaking,” the 40-year-old financial worker from Shanghai said. “The only thing that still keeps me going is the thought of keeping my job so I can support my big family.”
Zhou’s predicament will resonate with many people in China, where slumps in the real estate and stock markets are wiping away household wealth.And as the world’s second-largest economy struggles to regain momentum after years of Covid-19 lockdowns, there’s also the growing threat of unemployment.
Now, middle class households are being forced to rethink their money priorities, with some pulling away from investing, or selling assets to free-up liquidity.
At the heart of the decline in family wealth is China’s real estate meltdown, which having a pervasive effect on a society where 70% of family assets are tied up in property. Every 5% decline in home prices will wipe out 19 trillion yuan ($2.7 trillion) in housing wealth, according to Bloomberg Economics.
“It might just be the beginning of more wealth losses in coming years,” said Eric Zhu, an economist with Bloomberg Economics. “Unless there’s a big bull market, small gains in financial wealth are unlikely to offset losses in housing wealth.”
While China’s official data show just a mild drop in its existing home prices, evidence from property agents and private data providers indicate declines of at least 15% in prime areas in its biggest cities.
The housing sector’s value may shrink to about 16% of China’s gross domestic product by 2026 from around 20% of GDP currently, according to Bloomberg Economics. This would put about 5 million people, or about 1% of urban workforce, at the risk of unemployment or reduced incomes. Rainy days
Financial investments offer little respite. Chinese shares underperformed emerging-market peers by the widest margin since at least 1998 earlier this month. Mutual funds were in the red as of the third quarter. Yields on banks’ wealth management products remain subdued and deposit rates have seen three reductions in the past year.
The $2.9 trillion trust industry, where wealthy Chinese investors have sought high returns from products sold by loosely regulated shadow banks, is showing cracks, with one recent scandal potentially involving tens of billions of dollars in losses.
Net worth per adult in China slid 2.2% to $75,731 in 2022, UBS said in its August global wealth report, while total assets per adult fell for the first time since 2000 as non-financial holdings shrank due to the housing market difficulties.
Media worker Echo Huang watched as the value of her investment property in Ningbo, Zhejiang province fell about 1 million yuan from its 2019 peak. Now, she considers herself lucky to have sold it in May before prices dropped further.
Huang gave the majority of the proceeds from the property sale to her parents for their retirement savings, and put the rest in demand deposits and money market funds that allow real-time redemptions. She ruled out stock investments after her current holdings more than erased all gains since 2018.
“My company is struggling to survive, so who knows if I might get paid less or even laid off one day,” said the 39-year-old. “My main goal is stability in my assets, and I want to keep enough liquidity on hand.” Wealth protection
Even high-net-worth-individuals are turning more conservative, according to a joint survey by China Merchants Bank Co and Bain & Co. The number of the cohort citing “wealth protection” among their major money goals jumped significantly in 2023, and mentions of “wealth creation” decreased.
Peter Bao, who works at a big technology firm in Beijing, is following a prudent investment strategy.
His stock holdings, mostly in US-listed Chinese shares, at one point halved to the equivalent of about 5 million yuan from a late 2020 peak. Over the past two years he’s shifted part of his assets to money market funds and fixed income products that require less analysis. He’s hoping that he’ll be able to withstand short-term volatility and potential losses.
“There isn’t a single moment without anxiety and doubt, but there are no better options,” Bao said. “Also I need to focus on my job to protect my source of income, so I really can’t spare more time to explore other investments that are reliable.” No options
Faced with few chances to grow her wealth, 35-year-old Dani Wang said she’s “lying flat” and hoping the domestic economy and capital markets improve by 2026.
She’s deleted her trading apps and has no plans to adjust her 1 million yuan in stock and equity fund positions, or even check prices. She’s also ignoring any volatility in her 50,000 yuan Dogecoin investment made at the start of 2022, which has halved.
Hangzhou-based technology industry worker Lily Liu, who manages a few million yuan of family savings, agrees. While her parents’ property-related business suffered a steep income drop, her husband’s salary bump in recent years left her with more money at her disposal.
“I feel like my risk tolerance has reduced along with the increase in wealth,” said Liu, who is putting one of her two homes on sale, but has no idea where to invest the proceeds. “I wouldn’t bother spending more time on investments. Most likely it won’t pay off in this macro environment anyway.”
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
